Introduction
If you have an FHA loan, you may be wondering how to get rid of mortgage insurance. FHA loans require borrowers to pay mortgage insurance premiums (MIP) as part of their monthly mortgage payments. However, there are several ways to eliminate this additional cost and potentially save money in the long run.
Understanding FHA Mortgage Insurance
What is FHA mortgage insurance? FHA mortgage insurance is a policy that protects lenders in case borrowers default on their loans. It is required for all FHA loans, regardless of the down payment amount or the borrower’s credit score.
Types of FHA mortgage insurance: There are two types of FHA mortgage insurance premiums: upfront MIP and annual MIP. Upfront MIP is a one-time fee paid at closing, while annual MIP is an ongoing premium that is included in the monthly mortgage payment.
Methods to Eliminate FHA Mortgage Insurance
1. Refinancing: One of the most common ways to get rid of FHA mortgage insurance is to refinance your loan into a conventional mortgage. Conventional loans do not require mortgage insurance if you have at least 20% equity in your home. By refinancing, you can potentially save money on your monthly payments and eliminate the need for FHA mortgage insurance.
2. Loan amortization: If you have an FHA loan with a term longer than 15 years and a down payment of less than 10%, you will have to pay mortgage insurance for the entire loan term. However, once you reach 20% equity in your home, you can request to cancel the mortgage insurance. This can be achieved by making extra payments towards your principal balance or by making improvements to your home that increase its value.
3. Loan modification: If you are struggling to make your mortgage payments, you may be eligible for a loan modification. This involves working with your lender to modify the terms of your loan, which could include reducing the interest rate or extending the loan term. In some cases, a loan modification may also result in the elimination of FHA mortgage insurance.
4. Paying off the loan: The most straightforward way to eliminate FHA mortgage insurance is to pay off your loan in full. Once your loan balance reaches zero, there is no longer a need for mortgage insurance. This can be achieved by making extra payments towards your principal balance or by paying off the loan early.
Conclusion
Getting rid of FHA mortgage insurance is possible through various methods such as refinancing, loan amortization, loan modification, or paying off the loan in full. Each method has its own advantages and considerations, so it’s important to evaluate your specific situation and consult with a mortgage professional to determine the best course of action. By eliminating FHA mortgage insurance, you can potentially save money and have more financial flexibility in the long run.
References
– hud.gov
– bankrate.com
– investopedia.com
